GRS 450
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FM FCO 251865Z
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149
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TO PRIORITY HONG KONG TELNO 922 of 25 OCTOBER. 1974
1.
STRICTLY PERSONAL FROM STUART.
DEFENCE REVIEW,
DAVIES WILL HAVE TOLD YOU OF THE RESULTS OF HIS DISCUSSIONS IN LONDON. DRAFT RECORD OF MEETING WITH MOD IS IN MIF T. THE
MOST DISTURBING FACT THAT CAME TO LIGHT IS THAT WHEN MOD SPEAK OF
CURRENT PRICES THEY MEAN SEPTEMBER 1973 COSTS. THE £31M. ESTIMATE
WILL THEREFORE ALREADY HAVE ESCALATED BY 15-20S AND MAY DO SO BY
AS MUCH AGAIN BEFORE APRIL 1976.
2. THE OMISSION OF SOME CAPITAL COSTS FROM THE TOTAL SEEMS LESS DISTURBING. THIS PROBABLY ONLY MEANS NEW PATROL CRAFT, WHICH WOULD NOT ENTER INTO SERVICE UNTIL AFTER THE FIVE YEAR PERIOD, AND FOR WHICH THERE MIGHT ANYWAY BE ALTERNATIVES. OTHER UNCERTAINTIES OF CALCULATION ALSO SEEM LESS IMPORTANT THAN THE POSSIBILITY OF FURTHER
COST ESCALATION.
3. IF COSTS ARE ALREADY RISING BACK TOWARDS £40M. FOR THE REDUCED FORCE, THE EQUATION OBVIOUSLY BECOMES EVEN MORE DIFFICULT. BUT, AS SEEN FROM HERE WE NEED NOT YET ASSUME THAT THE ONLY SOLUTION IS TO START CUTTING FORCES BEYOND WHAT IS PRUDENT. DAVIES WILL EXPLAIN OUR THOUGHTS ON TACTICS. THE PRIME MINISTER'S LATEST PAPER TO THE CABINET NOW ONLY PROPOSES THAT QUOTE WE SHOULD REQUIRE
THE HONG KONG GOVERNMENT TO MEET A MUCH LARGER SHARE OF THE COSTS
UNQUOTE. IT THEREFORE SEEMS NOT IMPOSSIBLE THAT THERE WILL IN THE
END BE A DEGREE OF MEGOTIATING FLEXIBILITY ON PERCENTAGES.
4. YOU MAY THINK THAT, AFTER FURTHER CAREFUL MILITARY CONSIDERATION BOTH OF THE NECESSARY SIZE OF FORCES AND THEIR COST, YOU SHOULD BEGIN TO WORK BACK TOWARDS A PRESENTATION OF THE MAXIMUM AMOUNT THAT HONG KONG CAN PAY AND AWAY FROM PERCENTAGES,
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